Restrictive Covenants in Employment: Drafting Enforceable Agreements

Jan. 16, 2013 – The key to writing successful noncompete agreements is to be specific and not to extend their reach too far when writing covenants. In this video, Sara J. Ackermann, Ruder Ware, Wausau, discusses how to draft these agreements so they are enforceable in Wisconsin.

Restrictive covenants – such as noncompete agreements, nonsolicitation agreements, and confidentiality agreements – are often a term or condition of employment. Usually employers have several categories of employees they want to restrict from competition. In the health field, it is usually physicians; in other companies, it’s salespeople. Agreements are usually signed when the employee starts the business relationship.

Ackermann said, “It is very difficult to enforce noncompetes. If employers want to make sure they have an enforceable document they must consider several things when drafting.”

Successful agreements are very specific and do not extend their reach too far in restrictions. Some of the common mistakes employers make include:

What are the specific duties of the employee? Tailor the agreement so the employee knows exactly what he or she can and cannot do. If you wind up in court, you want to convince the judge that you have a protectable interest in making sure that that employee does not compete. It is important to define exactly what the employee did for you. You cannot ask an employee not to perform a service for another company that he did not perform for you.

What is the proper time duration? In Wisconsin, agreements rarely can go beyond two years.

What is a reasonable geographic restriction? Employers often extend their reach too far on geographic restrictions by trying to enforce a nationwide limitation. Consider if being out-of-state presents any competition to your company. “If you are afraid of losing customers, build a customer noncompete agreement,” says Ackermann. “A judge is going to find that more reasonable.”

Sara J. Ackermann, RuderWare LLSC, focuses her Wausau practiceon employment law for businesses. She presented “Restrictive Covenants in Employment” at the State Bar of Wisconsin PINNACLE® 2012 Health, Labor, and Employment Law Institute.

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